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These tips will help you pay off credit card balances faster, according to a financial advisor

These tips will help you pay off credit card balances faster, according to a financial advisor

by Jessica Dickler – CNBC

Sometimes a life raft can look like a credit card.

In an economy that has seen the highest rate of inflation since the early 1980s, Americans are struggling to meet daily expenses and are increasingly relying on credit cards to stay afloat.

Along with a dramatic increase in the cost of living, credit card balances grew by 13% in the second quarter of 2022, the largest year-over-year increase in more than 20 years, according to a report from the Central Bank. York.

Total credit card debt is back at $890 billion, just below the 2019 record.

“Many people have to resort to credit cards to pay for basic needs, especially with inflation driving up prices so much”said Allen Amadin, president and CEO of American Consumer Credit Counseling.

The number of people with credit cards and personal loans also hit record highs in the second quarter, according to TransUnion’s latest credit industry report.

Credit card rates near record highs

At the same time, the Central Bank is taking drastic measures to contain inflation, including raising interest rates, which raises the cost of borrowing to curb spending, but which means it will soon cost even more than it costs to have monthly payments. now

Since most credit cards have variable interest rates, there is a direct connection to the Central Bank benchmark. When the federal funds rate rises, so do the prime rates and so do the credit cards. Cardholders usually notice the impact within one or two billing cycles.

Image of a woman paying with a credit card.
Image of a woman paying with a credit card.Oscar Wong/Getty Images

Average credit card interest rates are now over 17%, significantly higher than almost all other consumer loans, and may reach 19% by the end of the year, which would be an all-time high.

Balance reduction is ‘critical to financial health’

“Reducing credit card debt is always important to financial health,” Amadin said. “However, it is now more important than ever that Americans survive on everyday expenses and continue to put money aside for savings.”

Here are his top three tips for paying off credit card debt, once and for all:

  1. Make a budget: For starters, it can help to use a spreadsheet or online tool to see where you’re spending money and how best to allocate those funds. It will also help you identify recurring expenses that may be taking money away from your long-term goals.
  2. Reduce expenses: When you’re trying to reduce debt, be sure to temporarily cut back on unnecessary expenses, such as streaming subscriptions, eating out, or impulse purchases. Cutting back on these expenses will help you stay within budget, stop adding to your revolving balance, and pay off more debt.
  3. Pay more than the minimum balance: Paying credit cards on time will help you avoid late fees and penalties. But don’t just pay the minimum required: it won’t do much to avoid high interest on the balance. Paying a little more than the minimum will lower the interest you have to pay each month and help you reach your goal.

Ultimately, the most important thing is to plan your finances and know how much you can spend while balancing the economy.

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